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The Supreme Court decision upholding the health-insurance mandate in the Patient Protection and Affordable Care Act (Obamacare) had a distinct Alice-in-Wonderland feel to it. As Lewis Carroll wrote in Through the Looking-Glass,

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”

Chief Justice John Roberts’s opinion held that the penalty for not complying with the mandate is both a tax and not a tax — depending on the question. If the question is whether someone may sue to strike down the mandate, the Court says yes because the penalty is not a tax. Under the Tax Anti-Injunction Act (first passed in 1867 but updated), one may not ask for an injunction against a tax before it has been enforced. One must wait to be taxed, request a refund from the IRS, and if turned down, then sue the government. In the Obamacare case, the Court denied such an attempt to have the challenge dismissed by declaring the penalty not a tax.

But only for purposes of the Anti-Injunction Act. It was another story when the question was whether the mandate-with-penalty is constitutional.

The government made two arguments in defense of its mandate. The primary argument was that Congress may require the purchase of insurance under the Commerce Clause. If young, healthy people are free to forgo insurance, only older, sicker people who require a lot of medical care will be left in the risk pool, jeopardizing the interstate insurance market.

That clause, which among other things empowers Congress to “regulate commerce … among the several States” has long been interpreted to refer to interstate commerce only and to include even activities that merely affect such commerce. Roberts and four other members of the court (Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito) did not buy that argument. “The Framers gave Congress the power to regulate commerce, not to compel it,” Roberts wrote. He rebutted in great detail the Obama administration’s many arguments that penalizing people for not buying insurance was a way to regulate interstate commerce. (In a related argument, also rejected by those five justices, the government said the mandate was allowable under the Necessary and Proper Clause, which authorizes Congress to enact laws related to the carrying out of enumerated powers.)

Fine. It does seem a stretch to claim that forcing people to engage in commerce (buying insurance) amounts to regulating commerce. As Roberts said, regulating something presupposes the existence of that something. But the mandate seeks to create commercial activity where it does not exist.

It is interesting that Roberts’s four allies on this point were actually in the minority for the overall case. The other four members of the majority (Stephen Breyer, Elena Kagan, Sonia Sotomayor, and Ruth Bader Ginsburg) found the mandate perfectly consistent with the Commerce Clause. But they were too few to carry the day.

So how did Roberts form a majority with those four to uphold the mandate?

Upholding the mandate

The government had a backup argument for its claim, and this one found favor with the five. The government argued that should the Commerce Clause argument fail, the Court could think of the mandate penalty as — wait for it — a tax! Yes, a tax. Conveniently, it is long-established law that Congress may regulate action (or inaction) by taxing it — even if it may not constitutionally regulate it directly.

Thus, in that view, Congress merely passed a tax that is levied only on people who fail to buy health insurance. The Court said that since the penalty will be collected by the IRS and has other features resembling a tax (including its income-based manner of computation in individual cases), it qualifies as a tax, even though it is used as a penalty and is even called that in the statute. (To further add to the bewildering situation, in November 2009 Barack Obama vociferously objected when during an interview ABC’s George Stephanopoulos called the mandate and penalty a tax. “[For] us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase,” Obama said.)

Voilá! What seemed unconstitutional became constitutional. The penalty now is a tax, even though earlier in the opinion the Court said the penalty is not a tax. Justice Humpty Dumpty has spoken.

Word games aside, no new constitutional ground was broken. Over the last couple of decades the Court has decreed that the Commerce Clause cannot be used to justify virtually any act of Congress, as was permitted in preceding years. Congress once tried to outlaw the possession of guns within a thousand feet of schools under the Commerce Clause. (The Court struck down the statute.) In light of recent history, then, drawing a line at the abstention from commerce seems less than earthshaking.

On the other hand, the Court for many years has found the taxing power broad enough to permit indirect regulation of conduct by means of taxation — even if regulation, and not revenue, is the primary motive. As the Court said in U.S. v. Sanchez (1950), citing precedents from the 1930s,

It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed…. The principle applies even though the revenue obtained is obviously negligible … or the revenue purpose of the tax may be secondary…. Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate. (Emphasis added.)

The Sanchez Court went on to quote a 1934 case, Magnano Co. v. Hamilton:

From the beginning of our government, the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which, considered apart, were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment. (Emphasis added.)

This is worth pausing on. Congress may constitutionally use its taxing power to regulate action even in cases where it would not be allowed to regulate it directly. Were you under the impression you live in a constitutionally limited republic?

An all-embracing power

That is all the more remarkable when one appreciates how broad Congress’s taxing powers in fact are. In the Brushaber case, upholding the 1916 income tax passed under the Sixteenth Amendment, the Court embraced the broadest possible interpretation of the federal taxing power — a power that, the Court said, predates the Sixteenth Amendment. The Court stated,

That the authority conferred upon Congress by 8 of article 1 “to lay and collect taxes, duties, imposts and excises” is exhaustive and embraces every conceivable power of taxation has never been questioned…. And it has also never been questioned from the foundation … that there was authority given, as the part was included in the whole, to lay and collect income taxes….”

The Court went on to acknowledge: “the conceded complete and all-embracing taxing power”; “the complete and perfect delegation of the power to tax”; “the complete and all-embracing authority to tax”; and “the plenary power [to tax].” And that was just in one paragraph. Later in the opinion we find this: “[The] all-embracing taxing authority possessed by Congress, including necessarily therein the power to impose income taxes….” (Emphasis added.)

Strangely, some limited-government opponents of Obamacare are rejoicing over the decision. Randy Barnett, the constitutional law professor at Georgetown University Law Center who is credited with formulating the case against the government’s Commerce Clause argument, wrote an op-ed in the Washington Post declaring, “We lost on health care. But the Constitution won.”

How’s that?

Barnett’s point is that Roberts’s affirmation of limits to the Commerce Clause struck a historic blow for individual liberty and against government power. Considered in isolation, one can applaud Roberts’s refusal to include abstention from buying insurance under the rubric “interstate commerce.” Unfortunately he didn’t leave the stage after that aria. He went on to say that other constitutional grounds exist on which the government can penalize us if we fail to buy insurance.

So where’s the victory for liberty? There is none here.

The government may have its way with us pretty much as it wishes. To the person being compelled, does it really matter which constitutional clause is invoked?

This article was originally published in the September 2012 edition of Future of Freedom.

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Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State.
Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..."
Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics.
A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.

Reading List

Prepared by Richard M. Ebeling

Austrian economics is a distinctive approach to the discipline of economics that analyzes market forces without ever losing sight of the logic of individual human action. Two of the major Austrian economists in the 20th century have been Friedrich A. Hayek, who won the Nobel Prize in Economics, and Ludwig von Mises. Posted below is an Austrian Economics reading list prepared by Richard M. Ebeling, economics professor at Northwood University in Midland and former president of the Foundation for Economic Education and vice president of academic affairs at FFF.